My father, Alan Kondo, has always been one of those “teach a man to fish and you feed him for a lifetime,” kind of guys. I hated it growing up! I just wanted my “fish for the day.” I realize now that he was investing in my financial knowledge and well-being; teaching me habits that he hoped I’d carry through adulthood. As a parent, I find myself echoing him, telling my boys, “I’m not giving you a car, you’re going to earn it!” Like my father, I find more excitement on the giving end of these lessons, rather than the receiving end. Here are some of the best pieces of advice my father gave me over the last 40 years.
Pay Yourself First
Growing up, I always had a “job” of sorts. When I was 10, I got paid $0.05/envelope for folding, packing and licking shut envelopes for my mom’s mailing – I used it to buy ice cream. When I was 16, I had a job at a local restaurant to-go counter. To this day, I still can’t stand the smell of BBQ baked beans, but I was able to buy a used Honda with my restaurant earnings. When I got my first “real job” out of college, I itched to think what I was going to buy next! My dad sternly told me to Pay Yourself First. I had no idea what this meant. Paying Yourself First means the first bill paid each month should be to yourself in the form of savings. The remainder of your paycheck can be used to pay groceries, bills and entertainment.
With my father’s help, I opened my first 401k savings account, and I saw my paycheck shrink by 30%. My father explained that the earlier I saved for my retirement, the sooner retirement would come. That’s because time is on my side, and the retirement savings will have compounded growth as dividends and interest accumulate and the stock market grows. Although a stock market pull back like the Great Recession or Covid-19 can be detrimental to an investment portfolio in a short window of time, over a working career, those dips can be offset by recovery and future market growth. Saving early can keep retirement goals on track for the long-haul.
Paying Yourself First also means having an emergency fund of six months to one-year of living expenses in a cash or CDs. That way if something unexpected like Covid-19 happens, you have a safety net to hold you over, and you don’t have to lock in losses by selling investments that are temporarily priced low.
Only Take Necessary Risks
When it comes to my outlook on risk, I’ve had several life phases. As a child, I was afraid of crossing the street. As a teenager, I thought nothing could hurt me. As an adult, I was wise enough to ask for advice. When I asked my father how to invest, he quoted the adage of moderation. Risks are sometimes necessary, but don’t take risks for the excitement with money that you need. In other words, don’t go to Vegas with your rent money.
For a retirement portfolio, diversification is one of the tried and true methods for capturing market gains, reducing downside risk, and weathering market downturns to achieve a positive long-term return. In the history of the stock market, there is no 10-year period where a diversified portfolio would not yield a positive return, even including the Great Depression. Investing in flashy stocks like Bitcoin can have a big return, or it can flop, so you should only invest in higher risk investments with money you can stand to lose.
Don’t Live in Fear
Having lived through the magnitude 6.7 Northridge earthquake in 1994, I grew very weary of earthquakes at one point. I told my father, “Why would anyone buy a house, if an earthquake is going to just crumble it to pieces one day?” My father validated my fears. Emotions are valuable in helping us to survive, thrive and avoid danger. However, strong emotions should be avoided when making important financial decisions. That’s because emotions can drive you to act quickly or irrationally out of fear or greed. For example, many people cashed out of the stock market this March, when the Dow was down 34%, locking in losses and missing out on the subsequent 31% bounce back in the weeks that followed.
Instead, when making financial decisions, try to focus on research, metrics and analytics. Numbers don’t have emotions and can help put things in perspective. Finally, sleep on it. Sometimes taking a break or stepping back can help you to see the bigger picture.
We Are Only as Strong as Our Community
My father grew up in Toronto where Japanese were discouraged from congregating post WWII. When he came to California, he was amazed by Japantown in San Francisco and Little Tokyo in Los Angeles. He was also inspired by the Japanese Americans’ abilities to band together with all disparaged communities to create positive social change. Since my father did not grow up with these communities, he never took it for granted.
Growing up, I enjoyed our visits to Little Tokyo. I loved spending my weekends eating at the Tofu Festival, climbing the rocks in the JACCC courtyard, getting origami paper in the Village Plaza, and attending obons in the hot July weather. As an adult, I realize these experiences were fostered by a community in constant jeopardy. While I feel young and powerless, it is now my opportunity to support the community that raised me. Perhaps I can teach someone interested “to fish”, or I can stand up for someone who is unheard. In an environment where tax breaks and financial grants seem to go to the wealthy, I can write letters, vote, and donate to help local businesses make ends-meet. Every bit of effort counts, and our community is counting on us. Sometimes it makes sense to invest in something with intangible returns.
Thank you and Happy Father’s Day to all the fathers, uncles, grandfathers, and mentors who devote years of thankless lessons on to “deaf ears.” I was listening Dad – thank you!